This is a quick and basic run down of how an independent film is sold. There are three terms you’ll need to understand this process:
Territories
There are almost two hundred separate ‘territories’ (essentially countries) in the world to which a film can be sold. Of these, only thirty-five are considered ‘meaningful’ for film sales.
Sales Agent
A producer takes a completed film to a ‘sales agent’, who acts as a salesperson for the film. The sales agent meets with ‘distributors’ often at ‘film markets’ to sell the film in as many territories as possible.
A sales agent will usually represent several films at any given time. Sales agents often specialize in a particular budget range and genre, which helps create and nurture strong relationships with buyers in that realm. Prolific indie producers sometimes act as their own sales agents.
Distributor / Distribution Company
‘Distribution companies’ (‘distributors’) purchase the rights to distribute
films throughout a specific territory. Films are distributed through many
channels including: VOD (Video On Demand), selling DVD copies of the film to chains like Walmart or Red Box (or online rental companies like iTunes and Netflix.com), selling the rights to screen the film on TV, or selling the rights to screen the film theatrically to theatre chains like Birch Carol & Coyle.
When a distribution company buys the rights to sell a film in a specific
territory, they can only sell the film within that territory. For example, if a
distributor in France buys the rights to distribute Toy Story 3 throughout
France, that distributor cannot then sell the film to Blockbuster in England.
Likewise, the distributor may only distribute the project in the format for
which they have purchased the rights: as a ‘theatrical release’ (in cinemas), a DVD release, VOD release, or otherwise.
Here’s where it gets a little tricky: many distributors also act as sales
agents to sell films to other distributors worldwide.
How An Independent Film Is Sold
Here is an example: Film A cost $50,000 to make. If the film appears to
be highly marketable, several sales agents may want to represent it and the production company may find a bidding war develops between sales agents willing to pay for the rights to sell the film. This is rare with micro and low budget projects, which are often taken by a sales agent with no upfront payment and the negotiation of a substantial sales commission.
The production company gives Film A to a sales agent to sell. The sales agent meets with distributors from many countries regarding Film A. Distributors from England, Germany, and France love Film A and want to buy rights to a full theatrical and DVD release. The English distributor pays $45,000, the French distributor pays $35,000, and the German distributor pays $40,000.
The distributor from the USA offers $30,000 for DVD only. In total, the sales agent has just made $150,000 for the film. He takes his percentage (usually 15%–35% of all sales, plus ‘costs’), which (at 20%) is $30k. Let’s assume modest costs of $10k to cover flights to film markets and $5k for meager marketing costs, leaving around $105,000 for the production company.
The production company made the film for $50,000 in hard equity, but has ‘deferments’ (money owed for labor provided by cast and crew, aka ‘sweat equity’) of $45,000. The deferments are paid back and the investors are reimbursed their $50,000, plus $10,000 to cover a pre-negotiated 20% interest on the money they contributed.
Once the deferments and investors are reimbursed, the producers, investors, and anyone else who owns a share in the film can start making a profit. Fees, interests, and costs vary as they are all negotiated on a per film basis.
It is important to note that even though $150,000 has been paid for
a film that only cost $50,000 in hard equity to make, the project has still
only just broken even financially. No profit has been made other than the
cast and crews up-front fees and the interest for the investors.
This is a pretty common scenario for independent film. If the sales agent made a solid deal with the distributors, the production company will get a percentage of movie ticket and DVD sales in each country. However, with a small budget and lack of star names, the distribution rights on our sample film were probably sold for a one-time fee.